MHP reports 5% drop in 2016 EBITDA, keeps dividends unchanged

Ukraine’s leading poultry producer MHP (MHPC LI, MHPSA) reported a 7% yoy increase in net revenue to USD 1,135 mln and a 4.8% decrease in EBITDA to USD 415 mln in 2016, according to its March 15 filing. The decline in 2016 EBITDA was mainly due to a 55% yoy decrease in VAT refunds, from USD 75 mln in 2015 to USD 34 mln in 2016.  The company’s operating cash flow before working capital changes decreased 13% yoy to USD 378 mln, while net cash flow from operations surged 218% yoy to USD 350 mln. 2016 net income was USD 69 mln, compared to a net loss of USD 113 mln in 2015.

 

The company’s directors recommended paying annual dividends in the total amount of USD 80 mln, or USD 0.7492 per share, so there was no change compared to 2015. The proposed payout implies an 8.2% dividend yield, based on yesterday’s closing stock price. The dividends are to be paid out on March 28, and the dividend record date is March 24.

 

The company’s net debt stood at USD 1,081 as of end-2016 (-11% yoy) and its net debt-to-LTM EBITDA ratio was 2.6x, down from 2.8x a year ago, which is within the Eurobond covenant limit of 3.0.

 

In its core segment, poultry meat, the company generated USD 970 mln in net revenue, a 10% yoy increase, while EBITDA in this segment declined 21% yoy to USD 270 mln, on the back of lower VAT refunds and a decrease in USD-denominated average chicken price (-6% yoy to USD 1.17/kg in 2016). Poultry sales rose 9% yoy to 535 kt.

 

In its farming segment, MHP reported 2016 net revenue of USD 85 mln (a 27% yoy drop mostly due to lower amounts of crop designated for sale as of end-2015) and EBITDA of USD 150 mln (a 60% yoy surge). The EBITDA increase in this segment was driven by higher harvest yields, production volumes and domestic grain prices.

 

Igor Zholonkivskyi: 2016 EBITDA results were lower yoy due to lower VAT refunds, which were halved for agri-producers in 2016 and are expected to be completely phased out in 2017. For MHP, VAT refunds and other state grant income amounted to USD 263 mln in 2013-15, or on average, USD 87 mln per year.

 

After the halving, MHP received USD 34 mln in VAT refunds in 2016. The effect of the vanished VAT refunds will be partially or fully mitigated in 2017 by the subsidies distribution procedure that was agreed upon by the government in February 2017. 

 

We estimate that the amount of state subsidies distributed to agricultural producers in 2017 will amount to USD 149 mln, out of which, up to USD 74 mln will be available for poultry producers. Up to USD 39 mln of this amount is going to be allotted to MHP.

 

We expect MHP to deliver mostly flat financial results in 2017, as the USD-denominated poultry price will likely remain stable throughout the year and domestic poultry demand can only marginally improve. Our outlook on MHP stock and Eurobonds remains neutral.